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Author Topic: Why is gold so valuable?  (Read 3767 times)

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Offline TaintedAndDelishTopic starter

Why is gold so valuable?
« on: August 29, 2014, 03:47:42 AM »

I have a dumb, but with some implications.

On the surface, my question is, "Why is gold so valuable?"

In itself, its just a physical material with limited uses. It's rare, and it's supply can be controlled by those who possess it, I get that. It has been used as currency in the past, perhaps because of this rarity, and currency has been based on it, but being rare and having a supply that can be controlled can't be all there is to it, right?

If the value of gold is more of a mind game, ie. "It's valuable because I say it is", then couldn't that same game be played with other marginally useful materials or goods? Is is possible to then "create value" with other materials that are rare, controlled, or cannot be reproduced legally? ( ie. copyrighted works )


Offline gaggedLouise

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Re: Why is gold so valuable?
« Reply #1 on: August 29, 2014, 06:22:09 AM »
It's sometimes cited that gold (and the other noble metals, silver and platinum) does not get contaminated or grimy over thousands of years; they are very durable and once they have been smelted and worked into objects, sheets or ornaments they won't oxidize or rust. Even copper goes green, shady or uneven over time. Also, they can be treated and shaped into much thinner and more detailed shapes - threads, fine leaves, jewellery - than any other metals. Those properties were really crucial in the days when gold was used in clothing, in exclusive home artifacts of rich people and so on, but today we have plastic which can be made to show much the same properties or even outstrip gold for pliability and ease of use. I haven't checked but I suppose a gram of lycra could be spun out to a longer thread than a gram of gold...  ;)

I figure the value and mystique of gold has something to do, historically, with the idea of empires literally lasting for many hundreds of years, aiming to last forever. If there's an expectation that one's country (in the shape it has at present) shall remain till the end of time or almost, and gold is very rare and precious, then the notion of gathering your wealth in gold and passing it on for ever makes sense. You could sort of expect that your descendants eight hundred years into the future would still be able to pay with the gold coins you've gathered in a sack or would be able to read your handwritten scrolls of paper, your property deeds or your memories, without any assistance. People in, like, the Roman empire really did expect that their empire might last forever and some of them (of the educated people) were a bit obsessed with the idea of having one's name and family live forever, really forever. I guess that's waned in the modern age, or it's changed its tack. Most of us know, if you'd think about it a moment, that extremely few people are getting remembered and widely talked or written about two hundred years or a thousand years after they left the present life, so it's not really a sensible first-hand goal to strive for, not if everything else is gojng to be subordinated to it. And actually, when somebody finds a hoard of gold coins or gold statuettes many hundred years old, the find doesn't get used for buying a house or a new car. It's valuable because it's antique and recognized as valuable, rather than simply because it is in gold - you don't treat Roman or old Spanish coins as currency and try to buy anything for them in a store, do you?
« Last Edit: August 29, 2014, 06:45:04 AM by gaggedLouise »

Offline Torterrable

Re: Why is gold so valuable?
« Reply #2 on: August 29, 2014, 07:30:57 AM »
I really like gaggedLouise's answer, so let mine be just a small supplement to that.

Firstly, understand that gold is almost forever. It does not tarnish, reacts with every few things, and is extracted much more easily by platinum, this allowing previous civilizations to use it.

Honestly? Gold's worth is, actually, partially because "we say it is", but, in that, it lends itself well to being said. To be more clear, gold's terribly limited quantity allows people to more easily measure value against it, because we can understand that, if we have gold, it will always have value. Gold's appearance allows it to be easily identified compared to the other rare earth metals that otherwise satisfy the "limited quantity" criteria.

If interested, search up "fiat currency", the criteria of which gold partially can satisfy which thus allows it to act as a universal currency.

Although "we say it is" may seem to be a weak reason, think about the fact that gold's value developed separately on each continent. Even before the Europeans had heard of the City of Gold or of how Aztecs valued gold so much, gold was at the top of their list of things to find and have.

So basically, gold satisfies some universal criteria of being a good currency. The reason we do not use it anymore is because it lacks some other criteria, namely, the ability to be controlled. A truly good currency can be adjusted by the government which issues it, and while that was possible in the past, it is not possible anymore.


Offline gaggedLouise

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Re: Why is gold so valuable?
« Reply #3 on: August 29, 2014, 08:18:34 AM »
Incidentally, the most abundant place to look for gold (or other heavy metals, such as iron, silver and uranium) would be in the core of the earth and other planets. If we had the gear to dig down into the planetary cores and haul up the hot, compressed and pure metals from there, it would outdo any kind of supply there's ever been from mining on land. The core of Saturn is estimated to be between 9 and 22 times the mass of the earth and it consists almost entirely of heavy metals. The main problem is, the temperature is calculated to reach beyond 11.000 Kelvin/Centigrade.  8-)

Offline Torterrable

Re: Why is gold so valuable?
« Reply #4 on: August 29, 2014, 10:08:57 AM »
Additionally, there is gold in the ocean, a predicted 20 million tons of it. However, despite its high price, gold is nearly impossible to extract economically from the waters of our planet; it is so dilute that it is in parts per billion in our ocean water, making a purification plant highly costly and useless for profit. And, although nodes of gold and other valuable metals such as manganese have been discovered at the ocean floor, perhaps due to the vents there, again, diving down that deep to mine is far too difficult for it to be considered useful just yet.

FUN FAX

Offline Inkidu

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Re: Why is gold so valuable?
« Reply #5 on: August 29, 2014, 10:54:09 AM »
As others have said there's the deal:

It's rare. Rarity is a large factor. The more common something is the less value it has. Remember, until the figured out the bauxite smelting process aluminum used to be considered the rarest metal on earth. The cap on the Washington Memorial capstone and the Library of Congress's leafing are both aluminum. Once the bauxite processes were figured out it's now used to wrap fried chicken and tuna casserole.

It does not corrode and is shiny. Humans like shiny stuff. One of the standing theories for this is we've evolved to like the glint of sunlight off clear water. So things that emulate that are nice. As previously stated, gold doesn't oxidize (rust, corrode). This makes it long lasting as well as rare and shiny. So it's desirable.

Something some people don't consider is that gold is easy! Humans like convenience. Gold is a pure metal which likes to form naturally and almost completely pure in nature. That means getting it out the ground is as simple as finding it and digging it out. Additionally gold is extremely malleable and ductile, which means when we do get the nuggets gold is very easy to work with making stuff.

However, gold is actually becoming a functional metal as of the late 20th and 21st Century. Not only is it a great computer component, but it's used in numerous space-based applications. In fact, until we figure out how to print diamonds on chips gold is probably the most cost-effective material in computer components.   

Offline Rick345

Re: Why is gold so valuable?
« Reply #6 on: September 21, 2014, 05:55:55 PM »
Why is gold so valuable? Because it attracts women...
While I say that tongue in cheek I think there's some truth to that.

Now I'm sitting here trying to think of something that is rare but, not worth a great deal of money...

Offline Cthonig

Re: Why is gold so valuable?
« Reply #7 on: September 30, 2014, 01:56:01 AM »
It was rare and while less rare now, the other qualities (people have mentioned above) haven't changed. Gold always stays lustrous. It is very malleable; it is one of the easiest metals to work. It takes aqua regia to get it to react. It is a very dense metal giving some serious weight to a coin. And because of these things it makes an excellent base for money because you can't counterfeit it.

Any counterfeit coin will: be harder or softer; tarnish; react with weaker reagents; be lighter. (There are only a few heavier metals and they are either rarer and/or more valuable.) It's not like counterfeiting is a recent idea so that has long been a significant feature about gold.

Another thing that's got an artificially inflated value that we accept as very valuable: diamonds. Gold isn't unique. But yeah, there are still moments when you go "Why?"

Offline Ontan

Re: Why is gold so valuable?
« Reply #8 on: October 24, 2014, 03:25:44 AM »
A few extra points:

- Gold is easily divisible, very portable, and (as noted) non-perishable. These are the main reasons that cultures develop currency over a barter system. If youíre a horse breeder, you canít really trade 1/187th of a horse for a loaf of bread. As for why they don't use other metals...

- Gold has limited uses. In modern times itís started being useful (eg circuitry), but historically there wasnít a whole lot you could actually do with a big pile of gold. This is actually extremely important for currency, as itís harmful to remove useful resources from circulation. If a regionís treasury decided to horde, say, iron instead of gold, itíd be very detrimental because said iron isnít being used: for every bar thatís being saved up, thereís one less plough, or sword, or whatever else that iron might've been used for. Having something nice and useless (like gold) means you can save up money without causing scarcity.

Lastly, it pays to note that gold itself wasn't inherently valuable, and was only used as a means of representing something else, such as productive labour or other resources. Contrary to expectations, Spain didnít become rich when they started shipping over hordes of gold from the New World. They actually became poorer because of mass inflation (which, in fairness, was an undocumented phenomenon before then).
« Last Edit: October 24, 2014, 03:28:00 AM by Ontan »

Offline Zakharra

Re: Why is gold so valuable?
« Reply #9 on: October 24, 2014, 09:19:26 AM »
  I thought the Spanish pulled more silver out of the ground than gold in the New World.

Offline alextaylor

Re: Why is gold so valuable?
« Reply #10 on: October 24, 2014, 12:50:05 PM »
Yup it's valuable because people put a value to it.

Nobody seems to have brought up the problem of paper money. Paper money is only as good as the financial institutes that control it. Back in ye olde days, governments flipped all the time. King George's paper money might have been valuable as long as King George was the king, but when King Bob conquered him, all of a sudden King George's currency had no value. This kind of thing happened quite a bit during the major modern wars.

Or you could have hyperinflation making your money useless, as in the case with Zimbabwe or Indonesia.

Gold and other precious resources were great in this case. No matter who your ruler is, gold's value remains the same.

This is also why I think most people should be holding jewelry or some other kind of portable money, in case of war or financial collapse.

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Re: Why is gold so valuable?
« Reply #11 on: October 24, 2014, 01:21:12 PM »
Gold and other precious resources were great in this case. No matter who your ruler is, gold's value remains the same.

Give or take a couple hundred dollars an ounce

Offline Ephiral

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Re: Why is gold so valuable?
« Reply #12 on: October 24, 2014, 02:31:38 PM »
This is also why I think most people should be holding jewelry or some other kind of portable money, in case of war or financial collapse.

This strikes me as a mistake not entirely dissimilar to the one the Spanish made. If you really think war hitting home or total collapse of our finance systems are likely enough risks to devote resources to, wouldn't you be better off hoarding wealth than money?

Offline Caehlim

Re: Why is gold so valuable?
« Reply #13 on: October 24, 2014, 09:56:31 PM »
If the value of gold is more of a mind game, ie. "It's valuable because I say it is", then couldn't that same game be played with other marginally useful materials or goods? Is is possible to then "create value" with other materials that are rare, controlled, or cannot be reproduced legally? ( ie. copyrighted works )



Yes. This postage stamp is worth more than $3.14 million, although the exact price it set at auction is a secret.

Offline TaintedAndDelishTopic starter

Re: Why is gold so valuable?
« Reply #14 on: October 25, 2014, 01:48:13 AM »
You see this with fine art too. It amazes me how much much high-end art is auctioned off for - we're talking millions and millions in some cases. In such a case, the art is just a canvas that's hard to reproduce - or of which there is only one authentic, identifiable copy.  To me, it looks as if it is being effectively turned into a currency - one who's worth can be manipulated in the future by those who play the game.

ie.
Pay 10 million in an auction for a rare painting and write it off as a business expense.
Sit on it.
Years later, sell it at a loss and take a take write off, or sell it at a profit and pocket the difference.

I don't know how tax laws come into play in this case, but to me, it looks as if the rich are creating their own currency.

I didn't read the article below, it refers to one such auction where art is auctioned by the "elite" at staggering prices.
http://www.nytimes.com/2014/10/08/arts/international/auction-houses-gear-up-for-frieze-week.html?_r=0



Offline Ephiral

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Re: Why is gold so valuable?
« Reply #15 on: October 25, 2014, 05:47:42 PM »
As a general principle, the answer to "Why is X valuable?" is "Because a sufficient number of people are convinced that it is." You can actually extend that past marginally-useful things and into the realm of negative utility - Bitcoin would be a strong example here.

Offline Vekseid

Re: Why is gold so valuable?
« Reply #16 on: October 25, 2014, 06:33:10 PM »
In the event of a financial collapse I picture starving goldbugs running around begging for food from farmers who basically look at it and say "I can't even wipe my ass with that."

Offline gaggedLouise

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Re: Why is gold so valuable?
« Reply #17 on: October 25, 2014, 07:07:53 PM »
I remember this catalogue from a museum show about the Incas, where the introduction kept harping the line "the Incas were eager to venerate their gods with gifts and sculptures that had to be of gold - massive gold". In bold type, to boot. In fact gold didn't have any special sacred status to the Incas, they just happened to have ample resources of it.  ;)
« Last Edit: October 25, 2014, 07:13:03 PM by gaggedLouise »

Offline alextaylor

Re: Why is gold so valuable?
« Reply #18 on: October 28, 2014, 10:02:02 AM »
This strikes me as a mistake not entirely dissimilar to the one the Spanish made. If you really think war hitting home or total collapse of our finance systems are likely enough risks to devote resources to, wouldn't you be better off hoarding wealth than money?

I mean from an individual's perspective, not a nation.

If a country collapses, paper money would be worthless. People might have to abandon their land and possessions in a war. Gold is still valuable across the border and it's very portable. So people could run from say, Syria to Austria with a gold necklace and wrist band and pawn it for enough money to rent out a house and buy some food for a few months. Even if they don't speak the same language, the value is carried over.


You see this with fine art too. It amazes me how much much high-end art is auctioned off for - we're talking millions and millions in some cases. In such a case, the art is just a canvas that's hard to reproduce - or of which there is only one authentic, identifiable copy.  To me, it looks as if it is being effectively turned into a currency - one who's worth can be manipulated in the future by those who play the game.

Yeah, pretty much. I know a guy who trades artwork. He says that it's a great full time job because art works as a better currency than cash, although a bit less liquid. Art's value rarely goes down unless the artwork is damaged or the artist is forgotten. But as with many kinds of investments, people expect a bunch to do OK, even making a slight loss, and 1-2 to turn into a big hit.

Offline Ephiral

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Re: Why is gold so valuable?
« Reply #19 on: October 28, 2014, 04:49:28 PM »
I mean from an individual's perspective, not a nation.

If a country collapses, paper money would be worthless. People might have to abandon their land and possessions in a war. Gold is still valuable across the border and it's very portable. So people could run from say, Syria to Austria with a gold necklace and wrist band and pawn it for enough money to rent out a house and buy some food for a few months. Even if they don't speak the same language, the value is carried over.
Yes, but how do you get from Syria to Austria if your resources are all tied up in gold rather than, say, fuel and food and self-defense? Gold is worthless outside the context of a society that can afford luxuries.

Offline alextaylor

Re: Why is gold so valuable?
« Reply #20 on: October 29, 2014, 02:18:01 AM »
It's a currency. Currencies are there to trade for resources you need. You can't eat gold, but neither can you eat money.

I mean you can steal a car and food. Or hoard. Or beg. You could also trade for it.

Whether the country cares or not for luxuries doesn't really matter. It's easier to sell a gold ring in Austria than it is to sell a gun or a car. Or if Austria bars you from entering, you could still your gold ring in Turkey, Sudan, anywhere in the world with a developed economy.

It happened in practice. My grandmother hung on to her jewelry and hid it back in WW2 when the Japanese were invading, raping, killing, printing their own temporary currency, and seizing houses. After the Japanese left, the currency they made up was worthless. Gold still kept its value.

Another situation are bank robberies and credit card fraud. There are cases where someone commits credit card fraud and buys lots of jewelry. Why not buy a car? Because cars can be tracked and can be lost. It's easiest to launder money in the form of jewelry because it's more easily traded.


* Actually in reality, Syrian Pound inflation seems to be 59.1% as opposed to USD which is 1.7%. So you're probably literally better off using gold instead of Syrian money.

Offline Inkidu

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Re: Why is gold so valuable?
« Reply #21 on: October 29, 2014, 07:02:54 PM »
In the event of a financial collapse I picture starving goldbugs running around begging for food from farmers who basically look at it and say "I can't even wipe my ass with that."
If it gets that bad, I'm thinking lead will be more valuable than gold. :J

Offline Ephiral

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Re: Why is gold so valuable?
« Reply #22 on: October 29, 2014, 07:16:35 PM »
It's a currency. Currencies are there to trade for resources you need. You can't eat gold, but neither can you eat money.
But... the entire premise given for hoarding gold is a situation dire enough that currency becomes basically valueless. In such a situation, it doesn't much matter what the currency is. Gold is pretty much entirely useless without a society with considerable resources to spare, and so has no particular reason to be valued in a survival scenario. If you've got enough leisure to devote people to goldsmithing, or the industrial capacity to make gold-doped circuits, then there are other currencies that are waaaay more convenient to have and use. If you don't, then... who exactly wants this gold? For what?

The reason I likened it to the Spanish error is that it's fundamentally the same thing: Mistaking gold and currency for wealth.

Offline Zakharra

Re: Why is gold so valuable?
« Reply #23 on: October 30, 2014, 12:26:27 AM »
But... the entire premise given for hoarding gold is a situation dire enough that currency becomes basically valueless. In such a situation, it doesn't much matter what the currency is. Gold is pretty much entirely useless without a society with considerable resources to spare, and so has no particular reason to be valued in a survival scenario. If you've got enough leisure to devote people to goldsmithing, or the industrial capacity to make gold-doped circuits, then there are other currencies that are waaaay more convenient to have and use. If you don't, then... who exactly wants this gold? For what?

The reason I likened it to the Spanish error is that it's fundamentally the same thing: Mistaking gold and currency for wealth.

 Paper currency would become worthless, not gold. There will always be a lot of people who value gold and for many people there will be a market for it so those with gold will be able to find someone to buy stuff off of.

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Re: Why is gold so valuable?
« Reply #24 on: October 30, 2014, 01:13:22 AM »
There is a saying:  In the country of the blind, the one-eyed man is king.  In general, the things that people want but don't have are 'valuable', regardless of their composition.  In a drought-stricken area?  That gallon of water is going to attract more interest than that Faberge egg.  Power outage in upper Saskatchewan in January?  Blankets, sweaters, and heating fuel are going to suddenly become 'worth' a lot.  Need to travel a long distance?  You're going to get farther with a bicycle than a backpack of jewelry.  Things with tangible purpose - or the skills to acquire those things - are a 'wealth' of a different sort.  The latter, particularly, is a 'wealth' that gives bigger returns the more it is spread around.